OpenAI and Microsoft are locked in a high-stakes negotiation over how to translate Microsoft’s nearly $14 billion investment into equity as the AI startup transitions to a for-profit corporation, according to a Wall Street Journal report. This pivotal discussion comes as tensions emerge in their once-celebrated partnership.
The two companies have enlisted investment banks to advise them on the process, with Microsoft working with Morgan Stanley and OpenAI tapping Goldman Sachs.The outcome could result in Microsoft owning a significant stake in what would become the second-most valuable startup in the US, behind only SpaceX.
However, issues have plagued the negotiation. The two companies are facing issues determining Microsoft’s equity stake and governance rights in the restructured company. The process is complicated by OpenAI’s unique transition from a nonprofit to a for-profit entity, a move rarely seen at this scale.
The Wall Street Journal reports that OpenAI plans to become a public-benefit corporation, balancing profit generation with social good. The company has a two-year window to complete this transition or risk investors in its latest funding round demanding repayment.
Meanwhile, the New York Times has revealed growing strains in the Microsoft-OpenAI relationship. Financial pressures, with OpenAI facing an expected $5 billion loss this year, have led the AI startup to seek additional funding and computing power from Microsoft. However, Microsoft has become more cautious about increasing its investment following last November’s brief ousting of OpenAI CEO Sam Altman.
In response to these challenges, OpenAI has been diversifying its partnerships. The company recently secured a $10 billion computing deal with Oracle and closed a $6.6 billion funding round led by Thrive Capital, with participation from Nvidia and MGX.